I am leaving a company and have $4,988.00 in my 401K and would like to cash it out.

5 comments so far...

The Answer Guy Said on December 17th, 2009 at 9:17 am:

Withdraws of 401k’s are taxed at a very high rate, financially speaking if you can get by without the money you would be better off rolling it over into another 401k.

melvinschmugmeier Said on December 17th, 2009 at 10:11 am:

If you are leaving a company and are going to cash out, your withdrawal will be added to your income — so you’ll pay what’s called your marginal tax rate [which varies based on how much you make]. In addition to the tax on the new income you will pay a 10% penalty if you are under the age of 59 1/2.

You might want to consider creating a rollover IRA account with Fidelity, it will become an IRA (no tax until you take it out) and you wont have to pay the penalty.

vsg74 Said on December 17th, 2009 at 10:24 am:

There is a 10% penalty for early withdrawal if that is your case. Other than that it is taxed at whatever bracket you fall into. Ex. if your current income is $50,000 it will now be $54,988 for the next year. It gets added to your income overall wheh you file.

bjlevine Said on December 17th, 2009 at 10:28 am:

I strongly advise you to roll the money into another 401k if you can. Once it’s there you can borrow against it without paying taxes or penalties. Please note that you cannot borrow against an IRA, but you can against a 401k.

If you are under 59 1/2, you will pay tax at your ordinary income tax rate plus a 10% penalty. Even if you have absolutely no income taxes owed for the year, the 10% penalty still applies. The penalty can be abated, but only for very specific reasons.

Please do not take this money out. You set it aside for your retirement. Given the current state of Social Security everyone needs as much retirement money as they can get!

dlee1982@sbcglobal.net Said on December 17th, 2009 at 11:05 am:

In addition to being taxed at the normal rates, it is subject to a 10% penalty unless you withdraw it for certain reasons (down payment on a house, over 55)